Wealth tax reduces inequality – political willpower through the plan solves all logistical barriers.

Capital Flight and Expatriation A further argument against an annual wealth tax is that it could result in capital flight and relocation by those subject to the tax. While some researchers found significant capital flight from France following its introduction of a highly publicized wealth tax in 1989, others have found limited mobility and expatriation.44 Saez and Zucman, and Senator Warren, have proposed that a wealth tax could be combined with measures to limit capital flight, such as an exit tax of 40 percent of net wealth for those who renounce their citizenship.45

Tax Evasion A common objection to an annual wealth tax is that it can be easily taxed through tax evasion. This certainly could have been the case in the past, but the rules of the game are changing as a result of the OECD's base erosion and profit shifting (BEPS) reforms and the implementation of more extensive anti-avoidance measures by national governments. By far the largest share of assets held by the wealthiest individuals is controlled by their equity ownership of either listed or partially held corporations.46

The Independent Commission for the Reform of International Corporate Taxation (ICRICT) notes: Despite the scale of hidden wealth... the existing data-collection infrastructure includes potentially powerful tools for transparency, including the recent adoption of tax transparency measures, such as the automatic, multilateral exchange of bank accounts data at a global level between tax authorities, public registries of beneficial ownerships and exchange between tax authorities of country-by-country reporting from multinational corporates.47

Following the passage of the US Foreign Account Tax Compliance Act48 in 2010, foreign banks now routinely report foreign assets to the US tax authorities, under the threat of severe sanctions. A global asset registry, as proposed by Piketty and ICRICT, would combine existing data with additional data collected by national authorities.49

Tax enforcement and compliance are matters of political will, and tax dodging and evasion can be countered by setting strong standards for disclosure, increasing opportunities for avoidance through legislative changes, strengthening anti-avoidance rules, increasing penalties, and increasing resources for investigation, enforcement, and prosecution. As Milligan assumes, elasticity of taxable income, which increases both income shifting to avoid taxes and real economic factors, is not an immutable measure but “changes with circumstances and can be affected by a government's choices about tax legislation and enforcement."50

Valuation One serious objection to an annual wealth tax is that it is sometimes hard to value assets, including shares in partnerships and private corporations that are not regularly traded on the stock market and thus cannot always be priced regularly. However, Saez and Zucman note that these assets at most constitute about 20 percent of the wealth of the very rich, and since they are often traded on at least an occasional basis, a reasonable valuation by tax authorities is possible.51 Saez and Zucman argue that the government could help to set a market for these assets-for example, by allowing companies to pay tax in the form of shares, which could then be sold, rather than in cash. The government could give itself the right to buy shares in private assets at rates close to the declared value as a deterrent to underreporting

Conclusion While others have concluded that the taxation of wealth could be better achieved through other measures, our review of the arguments against and for an annual wealth tax considers that an annual net wealth tax with a high threshold would be a well-targeted way to address growing inequality of wealth at the very top, and is likely more immediately withheld than the proposed alternatives.

We agree that Canada's system of capital taxation should be reformed and that inheritance taxes should be reintroduced, but doing so at this time would likely be more challenging than the introduction of a new tax on the very wealthy. Undertaking comprehensive tax reform, as some have proposed, is of course an attractive idea, but it would take many years to complete, and the outcomes are uncertain. Targeted fixes can be more quickly achievable and more effective in the short term.

An annual net wealth tax could not only be targeted at the ultra-wealthy, but also cover a wider range of assets than are covered by capital income taxes, and it should do so in order to prevent avoidance. There are valid concerns about the impact of an annual wealth tax on savings and investment, about capital flight and tax evasion, and about liquidity and valuation; however, the same concerns would be present with any alternative measures, and they could potentially be avoided. For example, an annual net wealth tax on the assets of the very wealthy could not only stimulate competition by reducing the dominant position of those business owners in industry, but also motivate them to look for higher-risk, higher-rate-of-return productive investments. Concerns about liquidity could be achieved with by allowing tax deferrals or payment by instalment.

To target those at the top, a wealth tax for Canada should be introduced at a high threshold for example, wealth in excess of $20 million, as the NDP has proposed- and with a broad base covering worldwide net assets. Those assets could include shares and other property held in corporations, trusts, immovable property, highvalue jewellery, artwork, and other luxury goods such as yachts and vehicles; limited exemptions could be provided for principal residences and pensions. The new wealth tax should be accompanied by an exit tax, to prevent capital flight, and by reforms to improve the transparency of asset ownership (such as the creation of a global asset registry), along with a range of other reforms now under consideration to prevent international tax avoidance and evasion.